Prepayment Meters and Fuel Poverty

Fiona O'Donnell Excerpts

Monday 20th January 2014 Commons Chamber

[Fiona O'Donnell (East Lothian) (Lab)]

This is the first time that I have been successful in securing an Adjournment debate, so my expectation of the Minister is high. I hope that he will not disappoint me, because I have some specific questions that I want him to answer.

It is appropriate to have the opportunity for this debate after the previous one about the effective regulation of payday lenders, in which you also generously called me to speak, Mr Speaker. As poverty and the cold bite across the UK, some will be driven into the jaws of those high-cost, under-regulated lenders to pay their energy bills. It is also appropriate to have the opportunity to hear from the Minister on blue Monday. As I left my home in East Lothian this morning, having scraped the ice off my car, I was aware that many in my constituency today not only face feelings of being blue about their lives, but are unfortunately blue with cold.

It was as a volunteer in my local food bank that I first saw the connections between changes to welfare, food insecurity, fuel poverty and prepayment meters. It is not an uncommon experience for food banks to find that people with prepayment meters who use the services of food banks have no energy to heat the food they receive. Households across the UK have seen energy bills soar. Last year, the big six announced increases of from 8% to 10%, with the average dual fuel bill now costing households £1,385. Many in my constituency without access to gas miss out on that dual fuel discount.

The Government have given two main responses to fuel poverty. The first was advice to shop around for a better deal. Does the Minister recognise that prepayment meters and debt are barriers to switching, and what is he doing to ensure that more people can switch supplier?

It is difficult for someone who inherits a prepayment meter to return to the credit method of securing an energy supply. Will the Minister tell the House whether he has any plans to act on that? During the last debate, I had a text from my son Michael to tell me that when he inherited a prepayment meter in the last property he rented in Newcastle, the supplier refused to remove it and to put him on the credit method, because of the postcode where he lived. I would hate to use my position to seek any preferential treatment for members of my family, but it shows that the experience is now hitting not only people with a record of debt and poor credit, but those inheriting prepayment meters.

The debt assignment protocol was promoted by Ofgem in September and introduced in November 2012. It was designed to assist customers with a debt to switch to the cheapest prepayment deal for them by increasing the threshold for the amount of debt that could be switched between suppliers from £200 to £500. The big six agreed to implement it voluntarily. Will the Minister tell the House what assessment he has made, or plans to make, of the protocol’s impact?

The second Government response was the statement to the House by the Secretary of State for Energy and Climate Change about the reduction—I refuse to call it a cut—in increases in energy bills to, on average, £50. In a response to me, he stated that prepayment meter users would benefit equally from that Government policy. Will the Minister explain to me exactly how people with prepayment meters will benefit, and what estimate he has made of the policy’s effectiveness for and impact on them?

Despite households being hit with increased prices, Ofgem’s “Domestic Suppliers’ Social Obligations: 2012 annual report” found that from 2010 to 2012 the number of disconnections for debt fell by 51% for electricity and by 69% for gas.

In June 2012, about 7.2 million people in the UK were paying for gas and electricity through a prepayment meter. The number of prepayment meters rose by 4% from 2011 to 2012 for electricity and by 6% over the same period for gas. It is reasonable at least to ask whether the reduction in disconnections and the growth in PPMs is linked. The problem will not have gone away, but may have been masked by the increasing number of PPMs.

Consumer Futures is conducting research with Citizens Advice and Citizens Advice Scotland to assess the scale of the problem of income-related self-disconnection and the impact of the changes, particularly in welfare, since 2010. Its findings will be reported later this year. Will the Minister give a commitment tonight that he will respond to any evidence from that research, and that he will work with consumer organisations to introduce a code of best practice on suppliers’ monitoring of PPM customers? We have to know the extent of this problem.

[Julie Hilling (Bolton West) (Lab)]

Does my hon. Friend agree that it is wrong that the energy companies do not monitor the energy use of people who are on prepayment meters? We have no record of the number of people who have self-disconnected because they are unable to afford energy and who are living in very cold homes.

[Fiona O'Donnell]

My hon. Friend makes a brilliant contribution, as ever. She is exactly right. It was ironic to hear British Gas boasting to the Energy and Climate Change Committee that it had not made any disconnections in the past year. It is clear that there has not suddenly been a solution that means that people are able to pay their energy bills. We have to get a handle on the scale of the problem. I hope that the Minister will consider sitting down with the big six, or getting Ofgem to do so, to find a way to ensure that they monitor the problem effectively, because the implications for people’s health and well-being—children and vulnerable people in particular —are considerable. The matter merits his attention.

Research conducted by Consumer Futures has also shown that 60% of PPM households had an income of less than £17,500. Given the clear connection between PPMs and poverty, and all the other factors that stem from poverty or cause poverty, it is vital that the Government and Ofgem do everything that they can to protect vulnerable consumers. However, the Government are in denial about the links between fuel poverty and PPMs. The Minister himself is in denial about it.

I deliberately put prepayment meters and fuel poverty in the title of this debate because I believe that there is a link. On 11 June, the Minister said that

“there is often an assumption that ‘fuel-poor’ and ‘prepayment meter’ are synonymous. In fact, only a relatively small number of the fuel-poor—20%—are on prepayment meters.”—[Official Report, 11 June 2013; Vol. 564, c. 60WH.]

However, the Department’s “Annual report on fuel poverty statistics 2012” showed that the highest fuel poverty rate by payment method is among households that pay for fuel using PPMs. I maintain that there is a clear link. The Minister needs to face up to that if he is to address the problem.

Customers who are moved on to PPMs are usually put on their supplier’s standard prepayment variable tariff and are therefore unable to protect themselves against price rises. Consumer Futures found in its March 2013 report, “Addressing the poverty premium”, that PPMs cost an average of £253 per year more. A report by Stratford-upon-Avon’s citizens advice bureau, “Left out in the cold: why prepayment meter users need a better deal”, said that the standard tariff is not always the cheapest and so customers who are already struggling to keep up with payments on their supplier’s cheapest tariff—perhaps an online tariff paid by direct debit—are moved to a more expensive one. Those customers are unable to access the best deals and discounts on the market or to lock into fixed-price deals. The report also found that only one of the 10 suppliers featured on comparison websites, British Gas, offered PPM users the opportunity to fix their fuel costs. Does the Minister agree that giving PPM customers the opportunity to take up fixed-price deals could be of benefit? What is he prepared to do to make that happen?

It is not just those on low incomes who may be disadvantaged by PPMs. The Muscular Dystrophy Campaign’s 2010 report, “The Cost of Living with Muscle Disease”, highlighted how for many people with neuro- muscular conditions, heating their home is essential for their muscles and mobility. Many patients are advised by their specialist consultant that they must keep their heating on at a minimum level, even at night. The report states:

“It is plainly inappropriate for people with muscular dystrophy to rely on PPMs in any circumstances”.

It says that that is inappropriate because of limited and fixed incomes, the extra costs of PPMs, and the risk of self-disconnection. Will the Minister confirm whether he has considered—or will consider—prohibiting the use of PPMs in the homes of anyone receiving the higher rate of disability living allowance or the enhanced rate of the new personal independence payment?

Citizens Advice and Consumer Futures have noted that many households with PPMs have never seen instructions on how to use or manage the meters, and have little understanding of the standing charges that apply. They conclude that that is because the meters have been inherited—a situation I referred to earlier. Consumer Futures has called for manuals to be distributed every time there is a new householder. How will the Minister ensure that consumers have better access to information about their PPMs?

Citizens Advice Scotland has found cases where levels of recovery were set too high, meaning that PPM users often sank further into debt. One customer was repaying £7 of debt out of every £10 on his meter. That same customer found that his debt had increased from around £260 to more than £600 following installation of the PPM, because the supplier had not told him the truth and had said there would be no charge for installing the meter when there was a charge. Therefore, action taken, supposedly to reduce and manage debt, had the opposite effect. What is the Minister prepared to do to ensure that energy suppliers are honest about charges for installation and removal of meters, and what more can be done to ensure that people have help in negotiating sustainable recovery levels with their supplier?

I understand that PPMs could be useful in helping consumers to reduce their debt and manage energy expenditure, and that that should be an option for consumers. For that to be the case, however, PPM users should have the same opportunities as other consumers to switch suppliers, and to have access to fixed tariffs, better and accurate information about the way their tariff works, and fair arrangements for repaying debt. The energy market as it stands does not serve the needs of consumers, and that is particularly true of vulnerable consumers and PPM users. The Government can and should do more. I hope that in the time available, the Minister will answer the questions I have raised, and I look forward to his response.

[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

I congratulate the hon. Member for East Lothian (Fiona O’Donnell) on an excellent maiden Adjournment debate—I believe she said it is the first time she has secured one—and may I say upfront that she raised some sensible and pertinent points that I take very seriously? I doubt that I will be able to answer all the points she has raised—[Interruption.] The hon. Lady asks whether I will write to her. She has made a serious and sensible speech tonight, and I would be happy to go further than simply writing to her. If she would like to take up my invitation to come and meet me and my officials, I will happily consider in more detail, face to face, the questions that she has raised. Not all her questions have convenient, pat answers. They bear further analysis, and she would be right to scrutinise further the answers she gets. There is undoubtedly a lot more to do on the problem—I am not complacent for a moment—but the fact is that we have finite resource to address it. We have made progress in recent years, but not nearly enough to be in any way confident that the problem is being defeated.

We are heading in the right direction and determined to do more, but, as the hon. Lady says, unacceptably high numbers of people are living in cold, damp and unhealthy conditions. That is why, for starters, the Government have introduced a new and more accurate measure of fuel poverty, and why, for the first time in many years, we will publish a fuel poverty strategy. That will happen later in the year. The strategy will be deliverable but, in addition, the public, the Opposition and parliamentarians from both sides of the House can hold the Government to account on delivery.

We continue to deliver the policies that we believe will make a difference in tackling fuel poverty this winter. The energy company obligation, which runs alongside the green deal, ensures that help goes to low-income and vulnerable households to help them to heat their homes and stay warm and healthy. New statistics will, I believe, be published tomorrow, but up to the end of October 2013 more than a quarter of a million measures were installed for people on low incomes, equating to around 220,000 households.

Colleagues will be aware of the proposed changes announced last year to the energy company obligation. They will result in savings of £30 to £35 in household bills on average in 2014. Those savings are part of a wider package of changes to green levies that is designed to reduce the cost of household bills by, on average, £50 a year. That will be welcomed by everyone, but particularly by the fuel poor, who must still pay those charges.

In respect of low-income and vulnerable households, I can assure the hon. Lady that the changes will not lead to any reduction in the intended level of support. Indeed, we want to provide longer-term certainty, so our consultation on the ECO changes will propose setting new targets for 2017, ensuring that the current annual scale of activity and ambition continues. In addition, the Government will use the consultation to come forward with further improvements to our fuel poverty schemes, with the aim of ensuring that greater help is made available to those fuel-poor households who are off the gas grid and living in rural areas.

I believe that the Government’s proposals strike the right balance between supporting the delivery of our critical energy efficiency agenda and limiting the cost borne by all customers, but especially those living in fuel poverty.

[Fiona O’Donnell]

I am aware that I have posed a lot of questions to the Minister, but could he answer one specifically? If the energy companies are not monitoring self-disconnection, how can he have a realistic picture of UK fuel poverty?

[Gregory Barker]

No Government to date have come up with a totally satisfactory answer to the self-disconnection question, and it is a problem. However, it is a relatively small part of the overall fuel poverty picture.

Let me clarify a point on fuel poverty and prepayment meters. The hon. Lady quoted me accurately, but my point was that the percentage of prepayment customers in fuel poverty—the latest year for which we have audited figures is, I am afraid, 2011—has continued to come down. In fact, fewer than one in five customers with a prepayment meter are defined as fuel poor. Not all those who have prepayment meters are fuel poor, and it is by no means true that the fuel poor all have prepayment meters—as I say, only about one in five do. It is not that I was trying to deny a link between the two—absolutely not. Of course there is a link. What I was pointing to is a larger problem. Quite often in this House, Members have assumed that by attacking the prepayment issue, we were really putting one’s hands around the fuel poverty issue. Unfortunately, it is only one of several concentric circles as far as fuel poverty is concerned. The hon. Lady is absolutely right to focus on prepayment customers as being vulnerable and worthy of further attention and support, but it is not correct to say that in so doing she is tackling the majority of fuel poor customers. I am glad to have cleared that up.

In addition to the energy company obligation, the warm home discount scheme requires more than 250,000 domestic customers to receive a discount on electricity bills. Typically, that is aimed at low-income and vulnerable customers. Some 2 million households this year will receive help under the warm home discount, including well over 1 million of the poorest pensioners who, in addition to the winter fuel allowance, will receive £135 off their electricity bills. The Government have also committed to extending the warm home discount in 2015-16, with an increased spend of £320 million. More than 1.16 million low-income households will receive that payment, and will do so, I am glad to say, without having to take any action. This is the result of data-matching undertaken by the Government and the seven largest energy suppliers. I am sure that the hon. Lady knows that accurately pinpointing who the fuel poor are and where they are has been a great stumbling block for this Government and previous Governments. We are making progress. Furthermore, the Department for Work and Pensions provides winter fuel payments and cold weather payments to help vulnerable households.

Finally, in 2013 the Government announced the creation of the Big Energy Saving Network. The network was established alongside existing advice to deliver a comprehensive package of advice and support, particularly to vulnerable customers, and has focused on helping them to reduce their energy costs through assisted action on tariffs, switching and take-up of energy efficiency offers. With total funding of £900,000, the network is supporting activity for more than 150 organisations. Some 500 volunteers from third sector organisations and community groups have been trained to provide advice and help consumers to take action.

I understand fully the point the hon. Lady made regarding manuals for prepayment meters, but for many customers a manual can often be daunting. I think the most effective thing is for one of the many volunteers, or people from the excellent organisations that are part of the Big Energy Saving Network, to be on hand to give helpful and supportive in-person advice on prepayment meters.

Of households that were fuel poor in England in 2011, approximately 25% paid for their electricity and 20% paid for their gas through prepayment meters. That compares to 13% and 10% among non-fuel poor households. Clearly, prepayment is more common among poorer households, but the relationship is far from absolute. They can also be a valuable alternative to disconnection for non-payment of bills. In 2010, Consumer Futures found that more than one third of consumers expressed a preference for prepayment meters, citing the security and peace of mind that comes from knowing they will not receive an unexpectedly large bill. Often, many of the poorest customers worry not just about the bill but about unexpected changes in it, and many value the certainty that prepayment meters bring.

Prepayment meters are not ideal, however, and have many drawbacks. Typically, they have been one of the most expensive payment methods, and when exchanging one for a credit meter, many suppliers have charged a fee or requested security deposits. As the hon. Lady said, if a customer cannot afford to top up their prepayment meter, they may self-disconnect. This is a difficult area, with many other factors that can confuse the figures—second homes, holiday homes and so on—but we are talking to suppliers to try and get a better grip on this important group of customers. We take the issue seriously and are currently looking at some proposals that I and my officials would be happy to talk through with the hon. Lady.

All these issues underline the importance of ensuring that prepayment meter customers are not prevented from accessing the benefits of competition or innovation in the market. Recently, several changes have improved the experience of prepayment meter users. Since 2010, most suppliers have chosen to equalise their prepayment tariffs with standard credit prices, while any remaining price differences from other suppliers are likely to fade out with the roll-out of smart meters. Suppliers, including some smaller providers, have also been competing hard for customers who pay by prepayment meter. Recent innovations include offering to change for free, scrapping security deposits and replacing meters with smart prepayment meters—that is obviously not universal among suppliers, but it is an encouraging trend in the market.

Suppliers now offer more ways to top up a meter, such as paying over the phone, online or through an ATM, showing that the prepayment market is far from uniform. There are welcome changes taking place. Prepayment consumers can still access considerable price savings and other benefits by comparing the market for the best deals, and smart metering has the potential to bring further benefits to prepayment customers. Every smart meter will have the functionality to operate in either prepayment or credit mode, so will enable easy switching between the two payment methods as customers’ circumstances change.

It is vital that suppliers take proactive steps to protect their prepayment customers, particularly the most vulnerable. They are currently obligated under their licence to take account of a customer’s ability to repay when setting a repayment schedule, and there is evidence to suggest that they are fulfilling this obligation. Average weekly debt repayment rates for prepayment customers have declined. In quarter 4, they were £6.94 for gas and £6.31 for electricity. This compares to £7.87 and £8.31 respectively in 2010. Furthermore, the majority of indebted customers are on standard credit, not prepayment meters, and repay through a variety of means, suggesting that repayment is tailored to the individual customer. Moreover, all suppliers now provide emergency credit on prepayment meters.

I apologise to the hon. Lady if I have not addressed all her points. We are committed to giving more choice to prepayment meter customers and to working with Ofgem and suppliers to ensure that their reforms work for those customers. I would be happy to sit down with her and go through it in more detail.

Question put and agreed to.